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05/22/2018

U.S.-China Trade

The United States and China reached some kind of trade agreement over the weekend, a statement issued on Sunday, May 20.  Following is the take of the Communist Party mouthpiece, Global Times, which describes it as a win-win, but read the last few paragraphs carefully.

---

Global Times, May 20, 2018

China and the United States issued a joint statement on Saturday vowing to take effective measures to substantially reduce the trade deficit between the two nations. According to the statement, China agreed to greatly increase its purchases of US goods and services to meet the growing demand of Chinese consumers and promote high-quality economic development. This will also create benefits for the US economy and job market.

The two nations agreed to increase the export of US agriculture and energy products. They also agreed to create favorable conditions for expanding trade in manufacturing goods and services.  The statement said that both sides reached consensus on intellectual property protection and promoting cooperation in this regard.

Trade between the two countries has continued to grow since China launched its reform and opening-up policy, allowing it to become the largest bilateral trader of goods in the world.  In recent years, both nations’ service trade markets have shown substantial growth.  China’s surplus of trade in goods with the US has gradually expanded due to several factors, making it the world’s largest trade surplus.

According to China’s statistics, China’s merchandise trade surplus with the US reached $275.8 billion in 2017 while US statistics showed that the US trade deficit with China was as high as $375.2 billion in 2017, about half the US global trade deficit.  It is difficult to maintain such an unbalanced bilateral trade system.  The US-China trade deficit has continued to expand, despite China working to reduce this number for many years. The deficit increased more than $20 billion from 2016 to 2017.

The US is experiencing strained relations with its trade partners around the world, especially with China.  Early this year the US unilaterally imposed import tariffs on steel and aluminum products. China took countermeasures in response to US policies. The trade spat severely impacted the overall relationship between the two nations and sent shockwaves throughout the global market.

China and the US have gone through three rounds of consultations so far, starting with Chinese Vice Premier Liu He’s trip to the US in February, the US delegation team’s visit to China in early May and the vice premier’s most recent US visit last week. These consultations allowed the world’s two largest economies to consult each other about the analysis, definition and resolution of issues in the long-term operation of their current trade mechanisms.

Economic and trade cooperation has always played the role of ballast and propeller in China-US relations.  However, recent economic and trade issues have continued to challenge the maintenance of a good and comprehensive relationship between the two countries. It is imperative these issues are resolved. If the two countries work together to keep trade relations stable, then the China-US bilateral relationship will be much stronger, and both sides can benefit from this win-win cooperation.

This appears to be a historic period of difficult adjustment as both nations fought fiercely for their own national interests. In the past two and a half months, the situation came close to reaching a disaster. Even until the very last moment before the final agreement was made, both countries did not give up, kept their determination and stood firm in their resolve.

Many may have noticed the words “to substantially decrease the US trade deficit in goods with China” in the joint statement. This might lead some to think that the US has won the trade talks.

However, the focus of the China-US economic and trade consultations was to discuss how China will expand its imports from the US as the large deficit reflects the imbalance between the two nations’ trade systems.  The main direction of the consultation is to promote and balance China-US trade.

Both nations now need to figure out how to achieve this balance. Washington hopes to maximize the interests of the US in this process, while China insists that the expansion of US imports must meet the urgent needs of its economic and social development. The US wants China to help reduce its trade deficit in a planned economic way. China persists with the view that the goal must be achieved through market methods that create a trade balance. China believes that to reduce the US trade deficit, the US should further open its domestic market to Chinese buyers. US products must meet the expectations of the Chinese market to stimulate China’s purchasing activities. This is the key point behind the trade dispute between China and the US.

From this perspective, the agreement signed by China and the US today has followed the win-win principle. The US will have the opportunity to reduce its trade deficit with China, while China will achieve the consistent purchase of US goods to benefit the development of the country and its people’s life. The US has promised to break its control of energy exports to China, which will diversify China’s energy import channels.  The US will sell more agricultural products to China, the equivalent of “exporting” agricultural technologies to China.

From a macroeconomic perspective, the trade balance is one of the key factors for continuous development of globalization. Each negotiation held by the two countries will push the situation to a better position. The promotion of fair trade principles is an irresistible trend. No positive outcome can be achieved without fairness.

For example, if China agreed to help the US reduce its trade deficit, but the US could not provide products to meet the needs of China’s markets and consumers, the agreement signed by both countries would be worthless. All trade agreements have to be executable and feasible, rather than irrational. This has been a fundamental rule before the two nations started their negotiations, and it will remain the same in the future.

As one of the largest trade surplus countries in the world. China has learned from this dispute with the US and will improve its understanding of international trade. It is also a good opportunity for all Chinese residents to review their country’s power from a new perspective.

China must continue to expand its market capacity and enhance the country’s irreplaceability in the global production and supply chains. It is time for Chinese to see that if China wants to become a modern power in the world, there is a lot of work to do.

---

Wall Street History will return in a few weeks.

Brian Trumbore



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-05/22/2018-      

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Wall Street History

05/22/2018

U.S.-China Trade

The United States and China reached some kind of trade agreement over the weekend, a statement issued on Sunday, May 20.  Following is the take of the Communist Party mouthpiece, Global Times, which describes it as a win-win, but read the last few paragraphs carefully.

---

Global Times, May 20, 2018

China and the United States issued a joint statement on Saturday vowing to take effective measures to substantially reduce the trade deficit between the two nations. According to the statement, China agreed to greatly increase its purchases of US goods and services to meet the growing demand of Chinese consumers and promote high-quality economic development. This will also create benefits for the US economy and job market.

The two nations agreed to increase the export of US agriculture and energy products. They also agreed to create favorable conditions for expanding trade in manufacturing goods and services.  The statement said that both sides reached consensus on intellectual property protection and promoting cooperation in this regard.

Trade between the two countries has continued to grow since China launched its reform and opening-up policy, allowing it to become the largest bilateral trader of goods in the world.  In recent years, both nations’ service trade markets have shown substantial growth.  China’s surplus of trade in goods with the US has gradually expanded due to several factors, making it the world’s largest trade surplus.

According to China’s statistics, China’s merchandise trade surplus with the US reached $275.8 billion in 2017 while US statistics showed that the US trade deficit with China was as high as $375.2 billion in 2017, about half the US global trade deficit.  It is difficult to maintain such an unbalanced bilateral trade system.  The US-China trade deficit has continued to expand, despite China working to reduce this number for many years. The deficit increased more than $20 billion from 2016 to 2017.

The US is experiencing strained relations with its trade partners around the world, especially with China.  Early this year the US unilaterally imposed import tariffs on steel and aluminum products. China took countermeasures in response to US policies. The trade spat severely impacted the overall relationship between the two nations and sent shockwaves throughout the global market.

China and the US have gone through three rounds of consultations so far, starting with Chinese Vice Premier Liu He’s trip to the US in February, the US delegation team’s visit to China in early May and the vice premier’s most recent US visit last week. These consultations allowed the world’s two largest economies to consult each other about the analysis, definition and resolution of issues in the long-term operation of their current trade mechanisms.

Economic and trade cooperation has always played the role of ballast and propeller in China-US relations.  However, recent economic and trade issues have continued to challenge the maintenance of a good and comprehensive relationship between the two countries. It is imperative these issues are resolved. If the two countries work together to keep trade relations stable, then the China-US bilateral relationship will be much stronger, and both sides can benefit from this win-win cooperation.

This appears to be a historic period of difficult adjustment as both nations fought fiercely for their own national interests. In the past two and a half months, the situation came close to reaching a disaster. Even until the very last moment before the final agreement was made, both countries did not give up, kept their determination and stood firm in their resolve.

Many may have noticed the words “to substantially decrease the US trade deficit in goods with China” in the joint statement. This might lead some to think that the US has won the trade talks.

However, the focus of the China-US economic and trade consultations was to discuss how China will expand its imports from the US as the large deficit reflects the imbalance between the two nations’ trade systems.  The main direction of the consultation is to promote and balance China-US trade.

Both nations now need to figure out how to achieve this balance. Washington hopes to maximize the interests of the US in this process, while China insists that the expansion of US imports must meet the urgent needs of its economic and social development. The US wants China to help reduce its trade deficit in a planned economic way. China persists with the view that the goal must be achieved through market methods that create a trade balance. China believes that to reduce the US trade deficit, the US should further open its domestic market to Chinese buyers. US products must meet the expectations of the Chinese market to stimulate China’s purchasing activities. This is the key point behind the trade dispute between China and the US.

From this perspective, the agreement signed by China and the US today has followed the win-win principle. The US will have the opportunity to reduce its trade deficit with China, while China will achieve the consistent purchase of US goods to benefit the development of the country and its people’s life. The US has promised to break its control of energy exports to China, which will diversify China’s energy import channels.  The US will sell more agricultural products to China, the equivalent of “exporting” agricultural technologies to China.

From a macroeconomic perspective, the trade balance is one of the key factors for continuous development of globalization. Each negotiation held by the two countries will push the situation to a better position. The promotion of fair trade principles is an irresistible trend. No positive outcome can be achieved without fairness.

For example, if China agreed to help the US reduce its trade deficit, but the US could not provide products to meet the needs of China’s markets and consumers, the agreement signed by both countries would be worthless. All trade agreements have to be executable and feasible, rather than irrational. This has been a fundamental rule before the two nations started their negotiations, and it will remain the same in the future.

As one of the largest trade surplus countries in the world. China has learned from this dispute with the US and will improve its understanding of international trade. It is also a good opportunity for all Chinese residents to review their country’s power from a new perspective.

China must continue to expand its market capacity and enhance the country’s irreplaceability in the global production and supply chains. It is time for Chinese to see that if China wants to become a modern power in the world, there is a lot of work to do.

---

Wall Street History will return in a few weeks.

Brian Trumbore